Captains of industry seek rescue package as coronavirus bites

Tuesday March 24 2020
BUSPIC

President Uhuru Kenyatta speaks during a meeting with members of the Kenya Private Sector Alliance at State House, Nairobi, on September 11, 2017. PHOTO | SAMUEL MIRING'U

By PAUL WAFULA

The Kenyan government is under pressure to announce a stimulus package to shield the economy from crushing under the weight of the novel coronavirus lockdown.

Businesses, employers and the rest of the private sector want President Kenyatta to provide tax waivers and a solid safety net as part of the economic rescue package to soften the blow.

The main tax waiver should be on essential products such as food and healthcare services to enable Kenyans buy more with the same amount of money.

Also on the table is a bailout package for sectors that are likely to be wiped out of business by the lockdown. The package should help protect jobs and make it easier for those who will be laid off to survive without a job at this time.

The Kenya Private Sector Alliance (Kepsa) said some of its members have already asked them to push for tax concessions to allow them some headroom as businesses move into survival mode.

“Some businesses would like some tax breaks and we’re exploring that. This is a dialogue we will have with the government,” Kepsa chief executive Carole Karuga said.

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Her lobby, she said, is engaging with the government through the Trade ministry.

The National Treasury on Wednesday held a meeting with various actors in the economy as it finalised a package to be announced soon.

Mr Tony Watima, an economist, said the government is finding itself in a tough position because it has to balance its need to collect taxes against rescuing the economy.

“The government should focus on stabilising [the] income of the vulnerable before a systemic shock hits the general economy. There are a lot of layoffs and closing down of businesses that are coming and, if that is not addressed, the economy will sink,” Mr Watima said, ''making it harder to revive.”

He added that the first step will be to clear all the remaining pending bills. “The government can also guarantee an interest-free fund for businesses that may need stabilisation at a low cost,” Mr Watima  said.

Other quick actions will include cushioning the supply chain of essential commodities through tax incentives for local products and better sanitary standards of imported goods to avoid the high cost of living.

In his first address on the measures to protect Kenya’s economy from being devastated by the Covid-19 shutdown, the Head of State said Treasury is coming up with some measures.

On Wednesday, banks were the first to announce measures offering some relief to consumers. Top on the list is free checking of bank balances, a far cry from what is needed.

In the State House briefing alongside commercial bank executives and the Central Bank of Kenya (CBK) Governor, Dr Patrick Njoroge, President Kenyatta told suppliers of basic commodities to avoid increasing prices to enrich themselves from the unfortunate situation.

This comes at a time when all indications point to a possible total lockdown in the coming days after the number of confirmed cases rose to seven.

A total lockdown will see the State restrict movements to those needed in providing essential services.

If a lockdown is enforced, shopping malls could remain open, but there would be restrictions on how many people get in and out as well as how much one is allowed to buy to prevent panic buying. Security officers would also stop all assemblies, while large markets could be shut down to stop the spread of the virus, whose first case was reported in China.

CBK said that to help alleviate the adverse effects, banks would seek to provide relief to borrowers on their personal loans based on their individual circumstances.

“To provide relief on personal loans, banks will review requests from borrowers for extension of their loan for a period of up to one year. To initiate this process, borrowers should contact their respective banks,” Dr Njoroge said.

Emergency measures will only apply where loan repayments were up to date as at March 2.

CBK also said medium-sized enterprises (SMEs) and corporate borrowers could also contact their banks for assessment and restructuring of their loans based on their respective circumstances amid the pandemic.

“Banks will meet all the costs related to the extension and restructuring of loans,” CBK said.

All money from banks will also be quarantined for one week before being released to Kenyans to guard against possible transmission of the virus via banknotes.

To facilitate increased use of mobile digital platforms, banks will waive all charges for balance inquiry.

“As earlier announced, all charges for transfers between mobile money wallets and bank accounts will be eliminated,” the banking sector regulator said, adding that it will closely monitor the implementation of these measures, particularly in light of the fast-evolving nature of the economic impact of the pandemic.

However, the measures will only be useful for people who have money in their pockets. Those that do not have money will need cheaper food and ways to keep them in employment.

Various actors in the business world have been calling for a stimulus package to protect the economy.

Other proposals include guaranteeing wages for those unable to work due to the crisis, supporting businesses and asking Kenya Revenue Authority (KRA) not to raid taxpayers.

With global supply chains disrupted, household goods imported from China and other markets will start disappearing from shelves in the next few weeks.

Traders dealing in these imported goods will be the first to take a hit from the disruption. Without goods to sell and no customers to buy, they will end up with big losses at the end of the month.

Landlords will also be staring at serious delays in rent payments at the end of the month, especially from tenants who rely on daily wages doing menial jobs to make ends meet.

A United Nations report on the Economic Impact of the Covid-19 on Africa projects that the virus will halve the economic growth in Africa from the current 3.2 per cent average to 1.8 per cent.

The report says a disruption of global supply chains will lead to a drop in value creation. There will also be demand side shocks from oil, tourism and remittances from abroad.

The other knock will be from a slowdown in investment, leading to job losses.

For oil exporting countries, they should expect revenue losses of up to Sh6.5 trillion ($65 billion) as well as inflationary pressures due to supply side shortages.

There will also be an unanticipated increase in health spending of up to Sh1.06 trillion ($10.6 billion).

The report adds that revenue losses could lead to unsustainable debt.

It has recommended that the continent takes decisive actions, including providing fiscal stimulus packages such as guaranteeing wages for those unable to work due to the crisis, favouring consumption and investment.

“As a safety net, provide incentives for food importers to quickly forward purchase to ensure sufficient food reserves in key basic foods items,” the report recommends.

On Wednesday, the Capital Markets Authority (CMA) advised listed companies and licensed persons including collective investment schemes that were scheduled to hold their Annual General Meetings (AGMs) in March, April and May 2020 to defer the forums to a later date while ensuring all affected stakeholders are notified in good time.

This followed the presidential directive that suspended public gatherings and meetings, among other measures. Without an AGM, many companies will be unable to pay dividends to their shareholders.

CMA noted that although the market had reacted immediately the first Covid-19 case was confirmed, it had since corrected itself and, going by the subsequent activities, there exists a great investment opportunity that investors can take advantage of.